2007 Final Results Announcement

Transcription

1 2007 Final Results Announcement FINAL RESULTS Champion Real Estate Investment Trust ( Champion REIT or Trust ) is a real estate investment trust formed primarily own and invest in income-producing office and retail properties. Currently Champion REIT owns approximately 95.7% of the gross rentable area of Citibank Plaza, a Grade-A office building complex located in the Central District of Hong Kong. Financial Highlights For the year ended 31 December 2007 Comparative % FY2007 Figures Change * Key Financial Figures HK$'000 HK$'000 HK$'000 Total Revenue 838, , % 339,515 Property Operating Expenses (158,445) (129,309) % (78,648) Net Property Income 680, , % 260,867 Profit After Tax 3,237,638 1,193, % 725,699 Distributable Amount 669, , % 257,039 Value of Portfolio 28,343,000 23,500, % 23,500,000

2 FY2007 Comparative Figures % Change * Other Relevant Figures Period-end unit price $4.57 $ % $3.76 Distribution per unit $ $ % $ Net Asset Value per unit $6.98 $ % $6.04 Gearing ratio % 30.0% 13.0% 30.0% Expense Ratio 18.9% 23.2% (18.5)% 23.2% Notes 1 FY2006 whole period annualized figure used for comparison. Annualization facr is 365/222 days. 2 Calculated based on tal borrowings of the Trust (comprising the HK$7,000 million term loan and the principal amount of the convertible bonds in the sum of HK$765 million) as a percentage of its gross assets. * No comparison is made FY2007 as there were only 222 operational days in the last corresponding period. MANAGEMENT DISCUSSION AND ANALYSIS Management Overview Champion REIT has continued make significant progress in 2007, supported by strong demand for Central Grade-A office space from multi-national occupiers, mainly in the financial industry. The year was characterized by strong internal growth for the Trust with tal distributable amount of HK$ million, 58.5% higher than that for 2006 (on an annualised basis). Distributable amount for the second half of 2007 was HK$ million, 49% higher than that of $ million for the first half. This was indicative of the strong momentum of underlying rental growth at Citibank Plaza. Throughout the year the REIT Manager has strived strengthen the portfolio and attain high income growth under strong Central district office market conditions. This was reflected by an 74.5% increase in the average passing rent rate for office space in Citibank Plaza from HK$38.44 per square foot at the beginning of 2007 HK$67.06 as of 31 December Spot rentals in Citibank Plaza reached HK$100 per sq. ft. by the end of The Trust s property asset value also rose HK$28,343 million at the end of the year, an increase of 20.6% over that of the previous year end. The REIT Manager has been pursuing a strategy prudently grow its asset base with quality yield accretive acquisitions. It completed its first acquisition of three additional floors in Citibank Plaza in January Negotiations over the purchase from the Great Eagle Group of the retail, office and carpark components of Langham Place, Mongkok, Hong Kong, comprising a tal gross floor area of approximately 1,300,000 sq. ft., were at an advanced stage by the end of Sale and purchase agreements were subsequently signed on 14 February 2008 at an implied price of HK$12,500 million. The proposed transaction was approved by independent unitholders at an Extraordinary General Meeting on 6 March 2008 and will proceed subject successful fund raising

3 Having exceeded expectations in 2006 and 2007, Champion REIT s prospects for 2008 are healthy. The fundamental components of Hong Kong s commercial property markets at year-end overall sub-5% vacancy in the office market (sub-2% in Central district) and no identifiable easing of demand for space support the consensus view of further growth in rents in the traditional business districts of Hong Kong in the year come. Operational Review Occupancy in Citibank Plaza at year end 2007 stayed at a high level of 96.9%, as compared 96.4% a year earlier. This reflects continuing high demand for Grade-A office premises from the financial services secr throughout Lease renewals in the property also echo the tight market conditions in the central business district, with such space as was vacated by rent-sensitive occupiers being swiftly taken by high quality financial services secr tenants growing their businesses or new arrivals, predominantly in the fund management and legal secrs. Average Monthly Passing Rents Citibank Plaza Office Leases (HK$ per sq.ft. of gross rentable area) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Citibank Plaza operates primarily on a three year rent review or expiry cycle. During 2007 the rent rates of some 50% of the leases in Citibank Plaza by floor area was marked market through rent reviews on existing tenancies and the renewal or re-letting of expired tenancies. Average passing rent for office space in Citibank Plaza in January 2007 was HK$38.44 by the end of the year this had risen HK$ Spot rental levels rose from approximately HK$80 at the beginning of 2007 approximately HK$100 at the end of the year. These increases were reflected in a significant increase in the Trust s tal revenue for 2007 HK$ million. As the Trust was listed in May 2006, there are no directly comparable year-on-year figures. However, revenue for the 222 operational days in 2006 was HK$ million, equivalent an annualized 2006 tal revenue of HK$ million. On that basis, tal revenue for 2007 showed a 50.3% growth. As some of the major rent reviews ok place in mid-year 2007, their impact on revenue was mainly shown in the second half. As a result, tal revenue for the second half of 2007 rose HK$ million, a 50.8% jump from the $ million recorded in the first half. In fact the full financial impact of the rent increases in 2007 has yet be shown. It will be more fully reflected in the results of Operating expenses for 2007 were HK$ million. The expense ratio improved substantially 18.9%, from that of 23.2% in As the average occupancy rate was higher in 2007, there was a higher rate of recovery of operating expenses from tenants. Also because portions of operating expenses are relatively stable and uncorrelated rental revenue, the increase in the average monthly passing rent resulted in a lower expense ratio. In fact, as rent rates improved further in the second half of 2007, the expense ratio for the second half fell further below 17%. Net property income was HK$ million, a 58.6% improvement over the annualized 2006 net property income of HK$ million. Net property income for the second half of 2007 was HK$ million, a 60% increase over that of HK$ million for the first half

4 Financial Review Financial Structure Champion REIT had a syndicated bank loan facility of HK$7,200 million (the Facility ) out of which the term loan of HK$7,000 million was outstanding as at 31 December The Facility is for a term of five years and bears interest at a variable rate. In order hedge against fluctuations in interest rate under the term loan, the Trust entered in interest rate swap agreements for a tal notional amount equivalent HK$7,000 million. Under the terms of the interest rate swap arrangements, the interest rate of the term loan of the Facility had been fixed until May Champion REIT, through one of its indirectly wholly-owned and controlled entities, issued the 2% guaranteed convertible bonds due 2011 ( Bonds ) in an aggregate principal amount of HK$765 million in January The Bonds feature a yield maturity of 4.15% per annum, a coupon of 2% per annum and are convertible in units of Champion REIT at an adjusted conversion price of HK$4.55 per unit. As at 31 December 2007, tal borrowings of the Trust (comprising the abovementioned HK$7,000 million term loan and the principal amount of the Bonds in the sum of HK$765 million) as a percentage of its gross assets were 26.1%. The gross liabilities (excluding net assets attributable unitholders) as a percentage of gross assets were 34.2%. Net Assets Attributable Unitholders As at 31 December 2007, net assets attributable unitholders was HK$19,544.3 million, an increase of HK$2,981.5 million over that of HK$16,562.8 million at year-end Net asset value per unit as at 31 December 2007 was HK$6.98. This compares with an NAV per unit of HK$6.44 as at 30 June 2007 and HK$6.04 as at the end of This was mainly due an increase in the valuation of the Trust s stake in Citibank Plaza of HK$3,559.4 million, not taking in account the addition of properties acquired during the year. The value of properties held by the trust at the end of the year amounted HK$28,343 million. Cash Position As at 31 December 2007, Champion REIT had a HK$604.9 million cash balance. Taking in consideration the financial resources available the Trust, Champion REIT has sufficient liquid assets satisfy its working capital and operating requirements. Pledge of Assets As at 31 December 2007, certain properties of Champion REIT with a fair value of HK$27,059.4 million gether with assignments of sales proceeds, insurance proceeds, rental income, revenues and all other income generated from the properties were mortgaged or pledged secure the banking facilities granted the Trust and certain properties with a fair value of HK$1,283.6 million were mortgaged the Bond Trustee secure the obligations of the issuer of the Bonds under the Bonds. Rental Stabilization Arrangement - 4 -

5 A shortfall had arisen under a rental stabilization arrangement ( Arrangement ) pursuant a sale and purchase agreement dated 11 December 2006 ( Agreement ) for the acquisition of 3 floors and certain carparking spaces in Citibank Plaza, resulting in a payment of approximately HK$28,622,000 Champion REIT. In respect of the period from 5 January June 2007, the actual New Property Income (as defined in the Agreement) was equivalent approximately HK$12,424,000 and was less than the pro-rated stabilization amount for such period of approximately HK$29,976,000. In respect of the period from 1 July December 2007, the actual New Property Income was equivalent approximately HK$19,922,000 and was less than the stabilization amount of each semi-annual period of HK$30,992,000. Accordingly, under the Arrangement, sums of approximately HK$17,552,000 and HK$11,070,000 were paid the Trust out of the designated escrow account on 3 July 2007 and 31 December 2007 respectively. In the opinion of the independent non-executive direcrs of the REIT Manager, the Vendor or the Guaranr, being Fair Page Limited and Kerry Properties Limited respectively, have fulfilled their obligations under the Arrangement for the financial year ended 31 December Outlook The REIT manager is encouraged by prospects for the Trust in Property market conditions in Hong Kong appear set continue favour the landlord with vacancy rates at hisrical lows. Demand for office space may moderate somewhat in the face of global financial market uncertainties. However the leasing market in prime commercial areas will continue be underpinned by the shortage of new Grade-A property supply. Retail consumption figures have retained their strength, augmented by growing urist expenditure and expansionary fiscal policy on the part of the government. This environment is likely continue assist the REIT manager in maintaining occupancy levels, and continuing revenue growth within the portfolio. After obtaining the necessary regulary and unitholder approvals, the REIT manager will be working hard complete the acquisition of the retail, office and car park components of Langham Place, Mongkok, Hong Kong, The yield-accretive landmark acquisition would be highly significant for Champion REIT. Upon completion of the purchase, the Trust will own two trophy properties on both sides of the Hong Kong Harbour. It would increase the Trust s assets from HK$28,343 million HK$42,513 million in value (based on valuation of Citibank Plaza as at 31 December 2007 and valuation of Langham Place as at 30 November 2007), moving it in terms of market capitalization from number 13 in Asia including Japan number 6. It would diversify the Trust s assets in a different area of the property market - the retail secr - in one of the busiest and popular commercial location in Hong Kong, increasing the retail weighting of the Trust s income base 22% (based on the aggregate face rental derived from all the leases of Citibank Plaza and Langham Place for the month of November 2007). The Trust s occupier base would also be broadened considerably, spreading out from financial services cover insurance, trading and retail. As part of the transaction, virtually all of the existing financial engineering features in the Trust s income structure would be removed, having become largely redundant after serving it s purposes in supporting stable yield levels in the Trust s early internal growth phase. This is of significance, providing as it does a clear and transparent financial structure based on a clean property yield. The financial transparency should lead more favourable rating of the units by invesrs. With the resulting lower cost of capital, the Trust would be in a better position continue its strategy grow through accretive acquisitions. The REIT Manager s efforts will be focused on further investments not only in Hong Kong, but also in the other major business centres in the region

6 DISTRIBUTION Distributable Amount The tal distributable amount of Champion REIT for the year ended 31 December 2007 ( FY07 Distribution Period ) amounted HK$669,822,000. This amount was adjusted eliminate the effects of non-cash finance costs due the interest rate swap of HK$303,430,000, equivalent HK$ and HK$ per unit before and after the Distribution Waiver (as defined below) respectively, which have been taken in account in the consolidated income statement. It is the present policy of the REIT Manager distribute 100% of Champion REIT s tal distributable income plus any additional amounts, at the discretion of REIT Manager, its unitholders. Distribution As stipulated in the Distribution Entitlement Waiver Deed ( Distribution Waiver ) dated 26 April 2006, each of Top Domain International Limited (a wholly-owned subsidiary of Great Eagle Holdings Limited), Fortune Mega Investments Limited (a wholly-owned subsidiary of Kerry Properties Limited) and Wing Tai Corporation Limited has agreed waive 55% of its entitlement receive distributions for the FY07 Distribution Period with respect all of the units it held as at the Listing Date. The distributable amounts for the half year from 1 January June 2007, being the FY07 Interim Distribution Period, and 1 July December 2007, being the FY07 Final Distribution Period, were HK$269,441,000 and HK$400,381,000 respectively, equivalent distribution of HK$ and HK$ per unit respectively after taking in account the Distribution Waiver. The tal distribution per unit for FY07 Distribution Period is HK$0.3397, which represents a distribution yield of 7.4% based on the closing unit price of HK$4.57 as at 31 December The distribution for FY07 Final Distribution Period of HK$ per unit will be paid persons who are registered unitholders as at 6 March The payment date will be on Thursday, 22 May Record Date for Entitlements The REIT Manager has set the record date for determining entitlements of FY07 Final Distribution on 6 March The reasons and justification gether with the relevant notice of book closure period were stated in our previous announcement dated 14 February 2008 and the unitholders circular dated 16 February REPURCHASE, SALE OR REDEMPTION OF UNITS Under the Trust Deed constituting Champion REIT, the REIT Manager is not permitted repurchase or redeem any of the units in Champion REIT until the relevant codes and guidelines issued by the Securities Futures Commission of Hong Kong from time time allow it do so. During the year, there was no purchase, sale or redemption of units by Champion REIT or its wholly owned and controlled entities

7 CORPORATE GOVERNANCE The REIT Manager has adopted compliance procedures and applies them ensure the sound management and operation of Champion REIT. The current corporate governance framework emphasizes accountability all Unitholders, resolution of conflict of interest issues, transparency in reporting, compliance with relevant regulations and sound operating and investing procedures. The REIT Manager has adopted a compliance manual ( Compliance Manual ) for use in relation the management and operation of Champion REIT, which sets out key processes, systems and legislation. During the year, the REIT Manager complied with the provisions of the Compliance Manual. A summary of the key components of the corporate governance policies that have been adopted and complied with by the REIT Manager and the Trust will be contained in the annual report. EMPLOYEES Champion REIT is managed by the REIT Manager and does not employ any staff itself. SUMMARY OF REAL ESTATE SALES AND PURCHASES During the year, the Trust completed an acquisition on 5 January 2007 of the whole of the 34th, 36th and 37th Floors of Citibank Tower and private carparking spaces nos. 39, 40 and 41 on the second basement of Citibank Plaza ( Acquisition ) pursuant the Agreement with Kerry Properties Limited (as the guaranr) and its wholly owned subsidiary (as the vendor) ( Vendor ). The purchase consideration was approximately HK$994,600,000, of which HK$259,488,000 was satisfied by way of issue of new units of Champion REIT the Vendor s nominated person upon completion, and the balance of HK$735,112,000 was satisfied in cash at completion, which was funded by the proceeds from the issue of the Bonds. In connection with the proposed acquisition of the retail, carpark and certain office portions of Langham Place, on 14 February 2008, Champion REIT entered in sale and purchase agreements (the "Agreements") with The Great Eagle Company, Limited ( GE Co ), Acefield Investments Limited and Truefaith Developments Limited (all being connected persons for Champion REIT within the meaning of the Code on Real Estate Investment Trusts) whereby Champion REIT agreed acquire all the issued shares of Renaissance City Development Company Limited ( Renaissance ), Ernest Limited and Best Noble Enterprises Limited and the shareholder s loan owing by Renaissance GE Co subject, among other things, the satisfaction or waiver of conditions precedent as set out in the Agreements (the LP Acquisition ) and the passing of the ordinary resolution of the extraordinary general meeting (the "EGM Resolution"). For the details of the LP Acquisition, please refer the unitholders circular dated 16 February The EGM Resolution was passed on 6 March On the same date, the REIT Manager, the Trustee and each of the Distribution Entitlement Waiver parties, being Top Domain International Limited, Fortune Mega Investments Limited and Wing Tai Corporation Limited, entered in a Deed of Amendment of Distribution Entitlement Waiver Deed, whereby the parties agreed terminate the undertakings of Top Domain International Limited, relating the distribution for the period from 1 January December 2008, effective as of and conditional upon completion of the LP Acquisition. Payment made by Top Domain International Limited in respect of the amendment of the Distribution Entitlement Waiver Deed is initially - 7 -

8 estimated be HK$97 million, subject adjustment as more particularly set out in the unitholders circular dated 16 February NEW UNITS ISSUED During the year, an aggregate of 58,725,930 new units were issued of which (i) 50,880,000 new units were issued on 5 January 2007 the Vendor s nominated person at an agreed price of HK$5.10 per unit as partial payment of the consideration for the Acquisition upon completion; and (ii) 7,845,930 new units were issued on 23 August 2007 the REIT Manager at the price of HK$4.00 per Unit (being the Market Price ascribed in the trust deed constituting Champion REIT) as payment in full of the manager s fee of approximately HK$31,384,000 payable by Champion REIT for the six months ended 30 June PUBLIC FLOAT As far as the REIT Manager is aware, more than 25% of the issued and outstanding units of Champion REIT were held in public hands as of 31 December REVIEW OF RESULTS The audited annual results for the year ended 31 December 2007 have been reviewed by the Disclosures Committee and Audit Committee of the REIT Manager. ISSUANCE OF 2007 ANNUAL REPORT The annual report of Champion REIT for the year ended 31 December 2007 is expected be despatched the Unitholders on or before 15 April ANNUAL GENERAL MEETING The annual general meeting of Unitholders of Champion REIT will be held on 9 May Notice of the annual general meeting will be contained in the 2007 annual report. SCOPE OF WORK OF MESSRS. DELOITTE TOUCHE TOHMATSU The figures in respect of the preliminary announcement of the Trust s results for the year ended 31 December 2007 have been agreed by the Trust s audirs, Messrs. Deloitte Touche Tohmatsu, the amounts set out in the Trust s audited consolidated financial statements for the year. The work performed by Messrs. Deloitte Touche Tohmatsu in this respect did not constitute an assurance engagement in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by the Hong Kong Institute of Certified Public Accountants and consequently no assurance has been expressed by Messrs. Deloitte Touche Tohmatsu on the preliminary announcement

9 FINANCIAL STATEMENTS The board of direcrs ( Board ) of the REIT Manager is pleased announce the audited results of Champion REIT (the Group ) for the year ended 31 December 2007 as follows: Consolidated Income Statement For the year ended 31 December Notes HK$ 000 HK$ 000 Rental income 5 750, ,404 Building management fee income 86,732 47,828 Rental related income 6 2, Total revenue 838, ,515 Property operating expenses 7 (158,445) (78,648) Net property income 680, ,867 Interest income 24,759 13,196 Manager s fee 8 (81,654) - Overprovision of listing expenses in prior year 1,975 - Listing expenses - (16,249) Trust and other expenses (10,672) (5,437) Increase in fair value of investment properties 3,720, ,368 Change in fair value of derivative component of convertible bonds (23,485) (740) Change in fair value of rental stabilisation agreement (1,644) - Finance costs 9 (379,690) (197,083) Profit before tax and distribution unitholders 10 3,930, ,922 Income taxes 11 (693,337) (156,223) Profit for the year/period, before distribution unitholders 3,237, ,699 Distribution unitholders, accrued (669,822) (257,039) Profit for the year/period, after distribution unitholders 2,567, ,660 Basic earnings per unit 12 HK$1.16 HK$0.26 Diluted earnings per unit 12 HK$1.11 HK$

10 Consolidated Balance Sheet As at 31 December 2007 At At Note HK$ 000 HK$ 000 Non-current assets Investment properties 28,343,000 23,500,000 Derivative financial instruments 646,828 1,042,052 Rental stabilisation arrangement 61,956 - Deposit for acquisition of investment properties - 60,000 Total non-current assets 29,051,784 24,602,052 Current assets Trade and other receivables 43,455 30,157 Bank balances and cash 604,943 1,241,860 Total current assets 648,398 1,272,017 Total assets 29,700,182 25,874,069 Current liabilities Trade and other payables 960, ,372 Deposits received 150,042 92,121 Tax liabilities 10, ,890 Distribution payable 400, ,039 Total current liabilities 1,522,101 1,426,422 Non-current liabilities, excluding net assets attributable unitholders Secured term loan 6,976,296 6,968,587 Convertible bonds 808, ,328 Deferred tax liabilities , ,888 Total non-current liabilities, excluding net assets attributable unitholders 8,633,800 7,884,803 Total liabilities, excluding net assets attributable unitholders 10,155,901 9,311,225 Net assets attributable unitholders 19,544,281 16,562,844 Number of units in issue ( 000) 2,801,436 2,742,711 Net asset value per unit HK$6.98 HK$

11 Distribution Statement For the year ended 31 December Note HK$ 000 HK$ 000 Total distributable income , ,039 Distributable amount be paid unitholders for the year/period - 100% of tal distributable income 650, ,039 - Additional amount at the discretion of the Manager 19, , ,039 Distribution per unit (a) Before taking in account the effect of the Distribution Waiver - For the period ended 31 December 2006 (note c) - HK$ For the period from 1 January June 2007 (note d) HK$ For the period from 1 July December 2007 (note e) HK$ HK$ HK$ (b) After taking in account the effect of the Distribution Waiver - For the period ended 31 December 2006 (note c) - HK$ For the period from 1 January June 2007 (note d) HK$ For the period from 1 July December 2007 (note e) HK$ HK$ HK$ Notes: (a) (b) Pursuant the Trust Deed, Champion REIT s distribution after the listing date relates the period from 24 May 2006 (the Listing Date ) 31 December 2006 ( FY06 Distribution Period ) and is the only distribution be made for the financial period of It is the policy of the Manger distribute 100% of tal distributable income as the distributable amount for the FY06 Distribution Period and for the year from 1 January December 2007 ( FY07 Distribution Period ). In addition, for FY07 Distribution Period, the Manager decided distribute an additional amount of HK$19,374,000 out of the amount received according the rental stabilisation arrangement as the distributable amount

12 Distribution Statement (continued) (c) Distribution per unit for FY06 Distribution Period is calculated as follows. The distribution was paid unitholders on 29 May Before taking in the effect of the Distribution Waiver HK$ 000 After taking in the effect of the Distribution Waiver HK$ 000 Distributable amount 257, ,039 Number of units Units in issue as at 7 May 2007, being the record date for FY06 Distribution Period 2,793,590,561 2,793,590,561 Less: Number of units subject the Distribution Waiver (note f) - (1,508,490,809) Total units for the purpose of calculating distribution per unit 2,793,590,561 1,285,099,752 Distribution per unit HK$ HK$ (d) Distribution per unit for the period from 1 January June 2007 ( FY07 Interim Distribution Period ) is calculated as follows. The distribution was paid unitholders on 3 Ocber Before taking in the effect of the Distribution Waiver HK$ 000 After taking in the effect of the Distribution Waiver HK$ % of distributable income 250, ,067 Additional amount at the discretion of Manager 19,374 19,374 Total distributable amount 269, ,441 Number of units Units in issue as at 10 September 2007, being the record date for FY07 Interim Distribution Period 2,801,436,491 2,801,436,491 Less: Number of units subject the Distribution Waiver (note f) - (829,669,944) Total units for the purpose of calculating distribution per unit 2,801,436,491 1,971,766,547 Distribution per unit HK$ HK$

13 Distribution Statement (continued) (e) Distribution per unit for the period from 1 July December 2007 ( FY07 Final Distribution Period ) is calculated as follows. The distribution is expected be paid out unitholders on 22 May Before taking in the effect of the Distribution Waiver HK$ 000 After taking in the effect of the Distribution Waiver HK$ 000 Distributable amount 400, ,381 Number of units Units in issue as at 6 March 2008, being the record date for FY07 Final Distribution Period 2,801,436,491 2,801,436,491 Less: Number of units subject the Distribution Waiver (note f) - (829,669,944) Total units for the purpose of calculating distribution per unit 2,801,436,491 1,971,766,547 Distribution per unit HK$ HK$ (f) Pursuant the Distribution Entitlement Waiver Deed dated 26 April 2006, each of Top Domain International Limited, a wholly-owned subsidiary of Great Eagle Holdings Limited, Fortune Mega Investments Limited, a wholly-owned subsidiary of Kerry Properties Limited and Wing Tai Corporation Limited has agreed waive 100% and 55% of its entitlement receive distributions with respect all of the units it holds as of the Listing Date for FY06 Distribution Period and FY07 Distribution Period respectively (the Distribution Waiver ). As of Listing Date, Great Eagle Holdings Limited held 1,349,495,877 units, Kerry Properties Limited held 114,796,151 units and Wing Tai Corporation Limited held 44,198,781 units

14 Notes: (1) General Champion Real Estate Investment Trust ("Champion REIT") is a Hong Kong collective investment scheme authorised under section 104 of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and its units have been listed on The Sck Exchange of Hong Kong Limited (the "HKSE") since 24 May Champion REIT is governed by the deed of trust dated 26 April 2006, as amended by a first supplemental deed dated 5 December 2006 and a second supplemental deed dated 4 February 2008 (the "Trust Deed"), entered in between Eagle Asset Management (CP) Limited (the "Manager") and HSBC Institutional Trust Services (Asia) Limited (the "Trustee"), and the Code on Real Estate Investment Trusts (the "Code") issued by the Securities and Futures Commission of Hong Kong. The principal activity of Champion REIT and its controlled entities (the "Group") is own and invest in income-producing commercial properties in Hong Kong with the objective of producing stable and sustainable distributions unitholders and achieve long term growth in the net asset value per unit. The address of the registered office of the Manager and the Trustee, is Suite 3008, 30th Floor, Great Eagle Centre, 23 Harbour Road, Hong Kong, and 1 Queen's Road Central, Hong Kong, respectively. The consolidated financial statements for the current period cover the twelve months ended 31 December The corresponding comparative amounts shown for the consolidated income statement, consolidated statement of changes in net assets attributable unitholders, distribution statement, consolidated cash flow statement and related notes cover the period from 26 April 2006, the date of establishment of Champion REIT, 31 December 2006 and therefore may not be comparable with the amounts shown for the current period. The consolidated financial statements are presented in Hong Kong dollars, which is also the functional currency of Champion REIT. (2) Application of new and revised Hong Kong Financial Reporting Standards ("HKFRSs") In the current year, the Group has applied, for the first time, a number of new standard, amendment and interpretations ("new HKFRSs") issued by the Hong Kong Institute of Certified Accountants (the "HKICPA"), which are effective for the Group's financial year beginning from 1 January HKAS 1 (Amendment) Capital Disclosures HKFRS 7 Financial Instruments: Disclosures HK(IFRIC) - Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies HK(IFRIC) - Int 8 Scope of HKFRS 2 HK(IFRIC) - Int 9 Reassessment of Embedded Derivatives HK(IFRIC) - Int 10 Interim Financial Reporting and Impairment The Group has applied the disclosure requirements under HKAS 1 (Amendment) and HKFRS 7 retrospectively. Certain information presented in prior year under the requirements of HKAS 32 has been removed and the relevant comparative information based on the requirements of HKAS 1 (Amendment) and HKFRS 7 has been presented for the first time in the current year

15 The Group has not early adopted the following new and revised standards or interpretations that have been issued but are not yet effective. HKAS 1 (Revised) Presentation of Financial Statements 1 HKAS 23 (Revised) Borrowing Costs 1 HKFRS 8 Operating Segments 1 HK(IFRIC) - Int 11 HKFRS 2 - Group and Treasury Share Transactions 2 HK(IFRIC) - Int 12 Service Concession Arrangements 3 HK(IFRIC) - Int 13 Cusmer Loyalty Programmes 4 HK(IFRIC) - Int 14 HKAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction 3 1 Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 March Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 July The Manager anticipates that the application of these standards or interpretations will have no material impact on the results and the financial position of the Group. (3) Basis of preparation The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards issued by the HKICPA. In addition, the consolidated financial statements include the relevant provisions of the Trust Deed, the Code and the Rules Governing the Listing of Securities on the HKSE. The consolidated financial statements have been prepared on the hisrical basis, except for investment properties and certain financial instruments, which are measured at fair values, as appropriate. (4) Segment information All of the Group's operations are located and carried out in Hong Kong, and the sole principal activity of the Group is investing in commercial properties. Accordingly, no segment information by business and geographical segment is presented

16 (5) Rental income HK$'000 HK$'000 Rental income 737, ,445 Car park income 12,054 6, , ,404 (6) Rental related income HK$'000 HK$'000 Interest income from tenants Surplus on forbearance fee 1,808 - Sundry income , (7) Property operating expenses HK$'000 HK$'000 Building management fees 88,656 48,945 Car park operating expenses 1, Government rent and rates 21,354 9,043 Legal cost and stamp duty 2,697 1,255 Property and lease management service fee 22,361 8,310 Property miscellaneous expenses 1, Rental commission 17,360 8,755 Repairs and maintenance 2, ,445 78,648 (8) Manager s fee Pursuant the Trust Deed, the Manager is entitled a manager's fee of 12% of the net property income of Champion REIT which amounted HK$81,654,000 in respect of the year ended 31 December 2007 as Champion REIT achieved a net property income of HK$680,446,000, which exceeded the required threshold of net property income of HK$200 million for each of the six months ended 30 June 2007 and 31 December The manager's fee is be settled by units of Champion REIT

17 As the net property income for the period from the Listing Date 31 December 2006 was HK$260,867,000, which did not exceed the required threshold of net property income of HK$270 million for that period, the Manager was not entitled any manager's fee for the year ended 31 December (9) Finance costs HK$'000 HK$'000 Finance costs represent: Interest expense on bank borrowings wholly repayable within five years 338, ,787 Interest expense on convertible bonds wholly repayable within five years 40,264 1,113 Other borrowing costs , ,083 (10) Profit before tax and distribution unitholders Profit before tax and distribution unitholders has been arrived at after charging: HK$'000 HK$'000 Audirs' remuneration 1,524 1,218 Trustee's remuneration 5,243 2,671 Principal valuer's fee Other professional fees and charges 1,689 1,438 Bank charges 18 4 (11) Income taxes HK$'000 HK$'000 Hong Kong Profits Tax: Current tax Deferred tax 692, , , ,223 Hong Kong Profits Tax is calculated at 17.5% ( : 17.5%) of the estimated assessable profit for the year/period

18 (12) Basic and diluted earnings per unit The calculation of the basic and diluted earnings per unit before distribution unitholders is based on the following data: HK$'000 HK$'000 Earnings Profit for the year/period, before distribution unitholders for the purpose of basic earnings per unit 3,237, ,699 Effect of dilutive potential units: Interest on convertible bonds 40,264 1,113 Change in fair value of derivative components of convertible bonds _ 23,485 _ 740 Profit for the year/period, before distribution unitholders for the purpose of diluted earnings per unit 3,301,387 _ 727,552 _ Number of units Weighted average number of units for the purpose of basic earnings per unit 2,795,848,909 2,742,710,561 Effect of dilutive potential units: Units be issued in respect of the manager's fee 4,959,608 - Convertible bonds _ 168,131,868 _ 7,483,541 Weighted average number of units for the purpose of diluted earnings per unit 2,968,940,385 _ 2,750,194,102 _ Basic earnings per unit before distribution unitholders HK$1.16 _ HK$0.26 _ Diluted earnings per unit before distribution unitholders HK$1.11 _ HK$0.26 _

19 (13) Total distributable income The tal distributable income is the profit for the year/period, before distribution unitholders as adjusted eliminate the effects of Adjustments (as set out in the Trust Deed) which have been recorded in the income statement for the relevant period. The adjustments arrive at tal distributable income for the year/period are set out below: HK$'000 HK$'000 Profit for the year/period, before distribution unitholders 3,237, ,699 Adjustments: Manager's fee 81,654 - Overprovision of listing expenses in prior period (1,975) - Listing expenses - 16,249 Increase in fair value of investment properties (3,720,940) (827,368) Change in fair value of derivative component of convertible bonds 23, Change in fair value of rental stabilisation arrangement 1,644 - Non-cash finance costs 336, ,831 Deferred tax 692, ,888 Total distributable income 650, ,039 (14) Deferred tax liabilities The followings are the major component of deferred tax liabilities and assets recognised and the movements thereon during the current year and prior period: Accelerated tax depreciation Investment properties Tax losses Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Charge (credit) consolidated income statement for the period from 26 April December 2006 and as at 31 December , ,789 (63,183) 155,888 Charge consolidated income statement for the year 16, ,165 25, ,797 As at 31 December , ,954 (37,990) 848,685 ========= ========= ========= ========= As at the balance sheet date, the Group had unrecognised unused tax loss amounting HK$22,070,000 (2006: HK$2,766,000) available offset against future profits

20 As at the date of this announcement, the Board of Direcrs of the REIT Manager comprises: Non-executive Direcrs: Dr. Lo Ka Shui (Chairman), Mr. Cheng Wai Chee, Chrispher, Mr. Lo Kai Shui and Mr. Ho Shut Kan Executive Direcr: Mr. Jeremy Bellinger Stewardson (Chief Executive Officer) Independent Non-executive Direcrs: Mr. Cha Mou Sing, Payson, Mr. David Gordon Eldon and Mr. Shek Lai Him, Abraham By Order of the Board Eagle Asset Management (CP) Limited (as manager of Champion Real Estate Investment Trust) Lo Ka Shui Chairman Hong Kong, 10 March